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RESULT UPDATE CMP: `187 HOLD FEBRUARY 9TH, 2017 Subros Ltd. Nifty 8,769 Sensex 28,290 KEY RESULT HIGHLIGHTS – Q3FY17 KEY STOCK DATA CMP Market Cap (Bn) 52W High/Low Bloomberg `187 `11.2 194.95/73.2 SUBR@IN 3-m daily average vol 131,295 SHAREHOLDING PATTERN DEC 2016 Promoters 40.0% FIIs & DIIs Public & Others 5.5% 54.5% (` mn) YEAR FY17E FY18E FY19E Sales 20,442 15,495 18,206 EBITDA 1,690 2,077 2,393 OPM(%) 10.9% 11.4% 11.7% 401 628 899 EPS (`) 6.7 10.5 15.0 P/E(x) 28.0 17.9 12.5 PAT Subros Q3FY17 results were mostly in line with our expectations. Following are the key highlights of Q3FY17: [email protected] [email protected] o EBITDA Margins contracted by 75bps to 11.2% o PAT increased by 86.7% to `112mn Started supplies to Maruti Suzuki Ignis – Maruti Suzuki recently launched Ignis in January, 2017. Subros has a 100% market share for the Ignis model and had started the supply of AC systems to it. Subros also has 100% market share for Swift, Baleno and Brezza. Radiator supply to Maruti to begin from February 2017 – Subros started supplying radiators to Maruti (Via Denso) from February 2016. However due to fire incident at Manesar plant, radiator manufacturing was stopped. The Company expects to resume the radiator production from this month (February bruary 2017) and anticipates to book `11.2bn sales from this facility on yearly basis. Order from Indian Railways – Subros has been supplying cab mounted HVAC units to Indian Railways for driver cabin application. It has received its third order from the Indiann Railways for supplies of 306 kits, the value of which is estimated to be `120mn. 50% of the order is expected to be completed by Q4FY17. Supply of Home AC Components (condenser) to t Whirlpool to gain momentum – Subros has started to supply condenser denser to Whirlpool for home AC segment and anticipates to garner `70-100mn 100mn annual sales from the same. Management expects this segment has a potential to achieve `300-400mn 400mn sales over the next 3-4 years. Air-conditioners conditioners mandatory in Commercial vehicles from 1st April, 2017 – The Govt. through an amendment has made it mandatory for commercial vehicle manufacturers to fit air-conditioners in all new trucks sold from 1st April, 2017. Subros expects expect to garner additional revenues of `1200-1250mn 1250mn from this opportunity over the next 3-4 years. Loss from fire in Manesar Plant on a declining trend – The management has indicated that the loss arising from the fire at its Manesar plant is still to be recognised and it is likely to be very nominal and would be recognised in Q4FY17. Q1FY18 onwards, there would be no loss still to be recognised. Reduction of raw material imports – Subros currently imports about 50% of its raw material. Going forward, the management agement plans to significantly reduce its imports from the current 50% to 35% % of the total raw material cost. This would significantly reduce the raw material cost of the company and reduce its currency fluctuation exposure. Muted capex plans for the next 2 years –Subros has planned a capital expenditure of `400-450mn 450mn each year for the next 2 years which is significantly less than the capex Subros has incurred in the past years. This is likely to lead to better return and profitability ratios going forward. Debt Reduction – Subros has a current debt of `3.9bn which management plans to bring it down to half over the next two years on the back of robust operational cash generation by the Company Tax Rate – Dueto robust R&D spend, Tax rate for Subros is likely to in the range of 1520% over the next two years. Chintan Gupta Tel: +9122-66638972 Net Sales Up by 13.4% (YoY) to `3.7bn CONCALL HIGHLIGHTS Mahesh Bendre Tel: +9122-61462937 o Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com Way2wealthResearc arch is also available on Bloomberg WTWL<GO> Subros Ltd. Result Update February 9th, 2017 VIEWS AND VALUATIONS Subros is supported by strong lineage and is well-equipped equipped to ride the next wave in the automobile industry in India. Apart from its core business of Car AC the Company has successfully forayed into a) Radiators business to Maruti b) Driver Cabin AC for Railways successfully and c) Condenser supply to Whirlpool. Based on these initiatives we believe the company is poised for profitable growth over the medium term. We expect Subros to post Sales Sale and Profit CAGR of 14.9% and 49.8% over FY17-19E FY17 19E respectively. At the CMP of `187 the stock trades at a PE of 12.5x 12.5 FY19E earnings rnings and EV/EBITDA of 5.2x FY19E earnings. We assign HOLD rating on the stock. Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com 2|P a g e Way2wealthResearc arch is also available on Bloomberg WTWL<GO> Subros Ltd. Result Update February 9th, 2017 QUARTERLYRESULTS Net Sales Materials consumed Changes in inventories Staff Cost Other expenditure Total Expenditure EBITDA Depreciation EBIT Interest Other Income PBT Tax PAT Exceptional items Reported Profit EPS (before exceptional items) (`) MARGINS Gross margins EBITDA PAT Tax Rate Q3FY16 YoY% Q2FY17 QoQ% 9MFY17 9MFY16 3,729 2,508 32 394 376 3,310 3,288 2,244 (34) 332 352 2,894 13.4% 11.8% -193.6% 18.5% 7.0% 14.4% 4,375 3,105 (20) 394 428 3,906 -14.8% -19.2% -258.6% 0.1% -12.0% -15.3% 11,348 7,899 (66) 1,138 1,162 10,133 9,469 6,441 (51) 959 1,004 8,352 19.8% 22.6% 29.4% 18.7% 15.7% 21.3% 419 210 209 105 -4 100 -12 112 -80 32 1.87 394 222 172 115 10 67 7 60 0 60 1.00 6.3% -5.1% 21.1% -9.3% -141.2% 48.4% -270.8% 86.7% 0.0% -45.6% 86.7% 468 216 253 102 2 153 -16 168 -125 43 2.81 -10.6% -2.7% -17.4% 2.2% -282.6% -34.5% -22.2% -33.3% -36.6% -24.0% -33.3% 1,215 661 554 310 31 274 -37 311 -243 68 5.2 1,117 638 479 315 14 178 16 162 0 162 2.7 8.9% 3.6% 23% -1.6% 0% 55.4% -331.3% 93.8% NA -57.1% 25% Q3FY17 Q3FY16 YoY (bps) Q2FY17 QoQ (bps) 9MFY17 9MFY16 YoY (bps) 31.9% 11.2% 3.0% -12% 32.8% 12.0% 1.8% 11% -90 -75 118 -2301 29.5% 10.7% 3.8% -10.4% 240 52 -84 -195 31.0% 10.7% 2.7% -13% 32.5% 11.8% 1.7% 9% -154 -108 105 -2249 Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com 3|P a g e (`mn) YoY% Q3FY17 Way2wealthResearc arch is also available on Bloomberg WTWL<GO> Subros Ltd. Result Update February 9th, 2017 FINANCIALS (`mn) INCOME STATEMENT FY16 FY17E FY18E FY19E Net sales YoY (%) 13,107 9.0 15,495 18.2 18,206 17.5 20,442 12.3 Raw material cost Employee Cost SGA cost Total expenses 8,834 1,337 1,416 11,586 10,551 1,581 1,673 13,805 12,343 1,857 1,930 16,130 13,797 2,085 2,167 18,049 1,521 11.6 1,690 10.9 2,077 11.4 2,393 11.7 Depreciation EBIT 865 656 866 824 964 1,113 1,013 1,380 Interest Other income PBT 417 25 264 397 24 451 322 11 802 255 14 1,139 (-) Tax Tax/ PBT PAT YoY (%) PAT (%) Extraordinary Items Reported PAT 24 9.2 240 19.3 1.8% 0 240 50 11.1 401 67.3 2.6% -240 161 175 21.8 628 56.6 3.4% 0 628 240 21.0 899 43.3 4.4% 0 899 KEY RATIOS FY16 FY17E FY18E FY19E EPS (Std) Book value 4.0 56 6.7 58 10.5 66 15.0 77 DPS 0.8 0.5 2.1 3.0 P/E EV/EBDITA (x) P/B (x) EV/Sales 46.8 9.3 3.3 1.1 28.0 8.2 3.2 0.9 17.9 6.3 2.8 0.7 12.5 5.2 2.4 0.6 Div Yield 0.4% 0.3% 1.1% 1.6% ROCE ROE 10% 7% 13% 12% 16% 17% 19% 21% Debt-equity (x) Current Ratio 0.9 0.3 0.8 0.3 0.5 0.3 0.3 0.3 Gross Asset Turnover Working Capital Days W/C % of sales 1.2 8 1% 1.3 5 2% 1.5 9 3% 1.6 12 4% EBIDTA EBIDTA (%) BALANCE SHEET FY16 FY17E FY18E FY19E Equity capital Reserves Net worth 120 3,231 3,351 120 3,354 3,474 120 3,835 3,955 120 4,524 4,644 Total Loans Deferred Tax Liability Total Liabilities 2,973 27 6,350 2,623 27 6,124 1,973 27 5,955 1,223 27 5,893 Gross block Less: Acc. Depreciation Net block CWIP Investments 11,605 6,459 5,146 1,029 0 12,105 7,325 4,780 1,029 0 12,605 8,289 4,316 1,029 0 13,355 9,301 4,053 1,029 0 1,766 994 78 3 996 3,836 3,566 94 176 0 6,350 2,303 1,053 8 3 1,177 4,543 4,117 112 315 0 6,124 2,863 1,237 61 4 1,474 5,638 4,898 131 610 0 5,955 3,313 1,389 23 4 1,758 6,487 5,528 147 811 0 5,893 CASH FLOW FY16 FY17E FY18E FY19E Net profit Depreciation Deferred tax Change in working cap Cash from Operations 240 865 0 348 1,453 161 866 0 (209) 818 628 964 0 (242) 1,350 899 1,013 0 (240) 1,672 -1,032 1,032 0 (500) 0 (500) 0 (750) 0 -1,032 1,032 (500) (500) (750) Free Cash Flow 420 318 850 922 Dividend -56 (38) (147) (210) 0 0 0 0 Inventories Debtors Cash Other current assets Loans and advances Current assets Current liabilities Provisions Net current assets Miscell. Exp. Total Assets Capex Investments Cash from Investments Fresh equity Debt -362 362 (350) (650) (750) Cash from Financing -418 418 (388) (797) (960) Net change in cash 3 (70) 53 (38) Opening cash 75 78 8 61 Closing cash 78 8 61 23 Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com 4|P a g e Way2wealthResearc arch is also available on Bloomberg WTWL<GO> Subros Ltd. Result Update February 9th, 2017 TEAM ANALYST DESIGNATION Alok Ranjan Mahesh Bendre Jaisheel Garg Shivani V. Vishwanathan Chintan Gupta Ashwini Sonawane Head – Research AVP AVP AVP Research Associate Research Associate INSTITUTIONAL SALES Bhavika Ravasia SECTOR EMAIL TELEPHONE [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] +9122-6663 8950 +9122-6146 2937 +9122-6146 2974 +9122-6663 8956 +9122-6663 8972 +9122-4019 2956 DESIGNATION EMAIL TELEPHONE Senior Manager bhavikaravasia@way2we [email protected] +9122-4019 2995 INSTITUTIONAL DEALING DESIGNATION EMAIL TELEPHONE Mitul Doshi Institutional Sales Trader [email protected] +9122-4027 8932 Capital Goods, Auto, Auto Ancillary Power, Power Equipment, Coal Mining FMCG, Consumer Durables Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com 5|P a g e Way2wealthResearc arch is also available on Bloomberg WTWL<GO> Subros Ltd. Result Update February 9th, 2017 Disclaimer Analyst Certification: We, Mahesh Bendre & Chintan hintan Gupta, the research analystand author of this report, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities, issuers, products, sectors sect or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific spe recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report, repor receives compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) Way2Wea and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. It is confirmed that Mahesh Bendre &Chintan Chintan Gupta, Gupta the author of this report has not received any compensation from the companies mentioned in the report in the preceding 12 months. Our research professionals are paid in part based on the profitability of Way2Wealth, which include earnings from other business. Neither Way2Wealth nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost lost profits that may arise from or in connection with the use of the information contained in this report. 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This material contains statements that are forward-looking; forward such statements are based upon the current urrent beliefs and expectations and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking forward statements. These uncertainties include but are not limited to: the risk of adverse movements or volatility volatility in the securities markets or in interest or foreign exchange rates or indices; adverse impact from an economic slowdown; downturn in domestic or foreign securities and trading conditions c or markets; increased competition; unfavorable political and and diplomatic developments; change in the governmental or regulatory policies; failure of a corporate event and such others. This is not an offer to buy or sell or a solicitation of an offer to buy or sell any security se or instrument or to participate in any particular trading strategy. No part of this material may be copied or duplicated in any form by any means or redistributed without the written consent of Way2Wealth. In no event shall any reader publish, retransmit, redistribute or otherwise reproduce reprod any information provided by Way2Wealth in any format to anyone. Way2Wealth and its affiliates, officers, directors and employees including persons involved in the preparation or issuance of this report may from time to time have interest in securities / positions, posi financial or otherwise in the securities related to the information contained in this report. To enhance transparency, Way2Wealth has incorporated a Disclosure of Interest Statement in this document. This should, however, howeve not be treated as endorsement ent of the views expressed in the report. Disclosure of Interest Statement in Subros Ltd. as on February 9, 2017 Name of the Security Subros Ltd. Name of the analyst Mahesh Bendre, Chintan Gupta Analysts’ ownership of any stock related to the information informatio contained Financial Interest Analyst : Analyst’s Relative e : Yes / No Analyst’s Associate/Firm : Yes/No No Conflict of Interest No Receipt of Compensation No Way2Wealth ownership of any stock related to the information contained NIL Broking roking relationship with company covered NIL Investment Banking relationship with company covered NIL No No No This information is subject to change without any prior notice. Way2Wealth reserves at its absolute discretion the right to make m or refrain from making modifications and alterations to this statement from time to time. Nevertheless, Way2Wealth is committed to providing independent indepen and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. quer Way2Wealth Brokers Pvt. Ltd. (CIN CI U67120KA2000PTC027628) SEBI Rgn. No. : INH200 00002739. No. 14, Frontline Granduer, Walton Road, Banga ngalore-560001; Website: www.way2wealth.com Email: research@way2w 2wealth.com 6|P a g e Way2wealthResearc arch is also available on Bloomberg WTWL<GO>